Resource Commodities

Leading Edge Materials (TSX-V: LEM) CEO Blair Way on the Romanian Cobalt Exploration Alliance & a Look Ahead at 2019

November 8, 2018

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Leading Edge Materials (TSX-V: LEM)(OTC: LEMIF), Mr. Blair Way. Blair, how are you this morning?

Blair Way: Good, Gerardo. How are you doing today?

Gerardo Del Real: I'm doing well, I'm doing well. It's a busy day. Big news out of the cobalt space. Uranium levels have forced the Glencore unit called Katanga to halt cobalt exports. That's a big deal because we've talked in the past about Leading Edge's mission, which is to develop critical metals assets in safe and established jurisdictions. Obviously, the Democratic Republic of Congo is the dominant player in the cobalt space. There is a rush to establish a critical metal supply chain outside of the traditional sources.

Leading Edge, in my opinion, is a premier junior. In that effort this morning, you happen to have news that coincides with your exploration alliance in Romania that is focused on cobalt. You've been very, very quiet, for good reason, about the assets that you're looking at. But you were a little bit more descriptive in this morning's release and I wanted to talk about that.

Blair Way: Absolutely. The Romanian project is an exploration alliance at present, so there's still tenure related issues that are expected and part of the process. So we're certainly being cautious in sharing too much information on the prospect until we secure that tenure. But we felt it was appropriate after doing a technical review recently on the ground and this press release just summarizes that as much as we can. And we're certainly very excited about this prospect and it aligns exactly as you said with our objectives as a company to secure the critical materials that are required for the emerging electrification of transportation disruption.

Cobalt is certainly one of those key commodities that are required. Identifying a European source is critical to the manufacturing of these lithium-ion batteries in Europe. Leading Edge is, as we've mentioned many times, identifying prospects for these sort of commodities, and this Romanian project certainly aligns perfectly with that.

Gerardo Del Real: So for people that aren't familiar, behind the scenes Leading Edge has established a local branch company, LEM Romania, of which it is the majority shareholder. You have the right to earn up to a 90% interest. Is that correct, Blair?

Blair Way: Absolutely. We've established this local branch and we have a partner within our local branch and we have the ability through work on the ground to earn in, as you mentioned, a 90% interest. And that will take time as we progress through the various permits that we need in place and the work on the ground as per normal.

Gerardo Del Real: Now there's two things that really stood out from the news release. The first is that LEM Romania is the owner of 25.5 square kilometers in central western Romania, so it obviously has lots of scale. The second is the belt. This is a very well-known belt in which you're exploring and looking to develop these assets. Can we talk a bit about both those points?

Blair Way: For sure. It's a massive block right now and it is a prospecting permit. That will eventually evolve, as we've mentioned, into an exploration license. Certainly we'd expect the exploration license to be smaller than that, but it still is a massive prospect. The region is very prospective and the Carpathian Mountain chains, Southern and Northern, certainly has a number of exceptional assets that have been identified already in the area and region that we're looking in. This Bihor Sud region is certainly very, very exciting. And what we've seen so far is fantastic and we're seeing, as we've mentioned, some historic data is right up the alley of what we're looking for. Our expectations are that we'll be able to transition from our prospecting permit into an exploration license and be able to get the traction both on the ground from a work point of view, but also security of tenure.

Gerardo Del Real: Now, assuming that everything goes well and we know it's the mining industry, everything takes longer than we'd like for it to take frankly, but assuming it all goes well and you're granted this permit and you narrow down the assets that you want to work on, when can we expect to start seeing some results about how prospective these projects are?

Blair Way: In an ideal world, as you said, it is the mining sector and these things, permitting and the like, always takes longer than we expect and we need to be optimistic. But certainly our expectations are that end of Q1 next year we should have some clarity on this and ideally an exploration license, But these things can take time and there can be a few bumps in the road, but certainly we're progressing very carefully down the path and making sure we're doing everything correctly in compliance with the regulations of Romania. As I said, we believe by end of Q1 next year we should have some clarity on this, on an exploration license.

Gerardo Del Real: Now again, without being too specific, Blair, I understand these are advanced-staged assets. These are assets that have seen lots of work in the past, where lots is understood. This isn't a situation where you're bending into a district that is a greenfields district that you're going to have to work up and develop. Am I accurate in saying that these are advanced-stage cobalt prospects you're looking at?

Blair Way: Absolutely. Now the region was explored and actually developed and extraction was undertaken for other commodities. The mining that was undertaken there was not looking for cobalt, however it was identified and passed over. So yes, it's a historic area and having spent some time on the ground there, it really has that feel and you can see it's a very mining-knowledgeable region. There's quite a bit of experience and capacity, some of it historic. You know, it was back in the '50s and '40s and, like some regions where I've worked in South America, it has a similar feel. You can go to these regions, and when I worked in South America and I went to areas of Colombia where historic mining clearly dated back for hundreds of years. You could see the type of old style of mining equipment that was there that was either remnant or even in some cases still operating.

In Romania on the ground there, it was the same sort of feel, but this was mining from the '50s, so not quite so antique, shall we say. It definitely is a brownfield-type project, but you need to be clear that the prospecting or the mining that was going on at the time was not looking for cobalt. And that's why we see the opportunity, we know from some of the historic data that cobalt's definitely there. We just need to identify how it occurs and what sort of scale we can see and that's really what this exploration license will be all about is hitting the ground. There are certainly some interesting access opportunities, old pits and some adits and things that we can work with to gain traction much sooner than, say, a greenfield project where you just have to go on the ground and do your traditional soil sampling and then geophysics and then an exploration program somewhat aligned. This has much more than that to work with.

Gerardo Del Real: What's the infrastructure like?

Blair Way: It's excellent. The road infrastructure is good. In fact, it was refreshing to see when we were walking the ground with power lines running over it and of course the reason there is power lines running over it is that there was mining in the '50s as I mentioned for other commodities, so the infrastructure is excellent. There's quite a bit of qualified, capable people in the region and it's a mining-friendly region because mining has been certainly part of that region for many, many years, decades. And as a result, there is expertise there that can help us with the work that we need to do moving forward.

Gerardo Del Real: The flagship asset, of course, is the Woxna graphite production facility in central Sweden. How are things coming along on that front, Blair?

Blair Way: Oh, for sure. As we've been putting out quite a bit of press on the progress of our test work to demonstrate our ability to identify equipment that can enable us to have a demonstration plant at Woxna so we can produce hundreds of kilos of battery-grade material for our customers or future customers. We've progressed through the testing and we're very close to being able to sort of move to the next step.

There'll be some information flow over the coming weeks to that effect. But certainly the work that we've done to date, our thermal purification work, our spheronising work and the ability to demonstrate our equipment that can give us that capacity to accommodate various different specs rather than identifying one piece of equipment that can meet one spec. We need to have that variability or ability to meet different specifications of different customers.

So we've been down through that path and really the next step is working with those vendors to identify demonstration plant-scale equipment that we can look at putting in our Woxna site, but we will be providing more news on that over the coming weeks. But certainly Woxna is still our flagship asset and we're very excited about the prospects of working with customers and providing them with meaningful samples. As always, these things take longer. We've talked about mining projects and even in the stage that we are with Woxna where we're fully permitted and fully operationally ready, we're also waiting on our customers to get their facilities in place because in Europe currently there are a number of companies undertaking the steps to become a major battery cell manufacturer, but they're not in place yet.

So we have to align, as I've mentioned before, our progress with their progress. If we get into production too early, that'll create a problem. If we're in production too late, obviously the customers will be going elsewhere for materials. We're working closely with these potential customers and believe we're on the right path to align our production with their ramp up of production of battery cells. And as I mentioned there's a number of a planned battery plants and as the news flow continues, we're seeing even more battery plants planned for Europe.

So we're still very bullish about the prospects for customers for our materials. Timelines probably have stretched out more than we would like, but that's the nature of the beast. The electrification of transportation is no easy task and we're seeing all the major auto manufacturers in Europe taking on that task. But it takes time and that trickle-down effect to manufacturing of cells in Europe and therefore the demand for European materials is in the process that we're monitoring very closely to make sure that we line up with that demand curve.

Gerardo Del Real: And just to be clear, Blair, for patient shareholders that have seen the share price go from low to high then back to low, you have a financing you're working on now and tax-loss selling season working against you, but for patient shareholders or even people that are new to the story, the question of going into production and finding these customers, it's a when question not an if question. Is that accurate?

Blair Way: That's correct. The amount of bullishness about the uptake of electrification of transportation, be it not only just private vehicles but also the buses and trucks and so many different avenues, even electric bikes and things like that. The electrification of transportation and the reduction of a requirement or dependence on the internal combustion engine is happening. There's no question about it. The timing, as always the bulls say it's going to happen tomorrow and the bears are probably a little more cautious and saying maybe it's five years from now, but it's definitely happening and we're seeing the uptake going faster and faster.

We're hearing so much about this that it really is, as you've mentioned, it's not a matter of if, it's a matter of when. We are positioning ourselves to be in the right place at the right time for that when. It does take time and it's taking longer. I know we've spoken for the last couple of years and I truly did expect to see greater progress from our customer side in the last couple of years and it's taken time, whether it's permitting but also their customers.

If you're building battery cells in Europe, you need to have customers for those cells. If the European auto manufacturers are still a little bit behind in the production of their electric vehicles, then the demand for the cells are not there yet. It is taking time, and certainly we have taken a bit of a beating as you'd mentioned with the tax-loss selling. The summer was not that great, and of course we've got a financing on currently. So, I look forward to getting the financing behind us and we can get back to business and keep moving the company forward. But it is a matter of when, not if.

Gerardo Del Real: Fantastic. Blair, thank you so much for the thorough update. I appreciate it. Look forward to more details out of Romania and, of course, out of Woxna. Thanks again.

Blair Way: Thanks, Gerardo. It's always great to catch up and look forward to speaking again.